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ISAs Advice

An ISA is an Individual Savings Account that allows individuals to hold cash or shares without having to pay tax on interest accrued or dividend payments. The most common type of ISA is a simple cash ISA. You can open an ISA with a bank or building society, subject to approval.

Cash ISAs

A cash ISA allows the account holder to deposit money into the account up to a set limit each year. This set limit is called the ISA allowance. The ISA pays interest on this money and any money left in the ISA from previous years. The interest paid is not subject to tax.

When should you get an ISA?

Anyone at any age should consider getting an ISA if they plan to save. To make the most of this saving opportunity and avoid having to pay tax on interest for longer, the earlier you take out a cash ISA the more beneficial it can become, especially if you add to it each year.

The pros and cons of Cash ISAs

The benefits of using a cash ISA are:

Your capital is secure and not at risk
You can find competitive interest rates, usually better than other savings accounts
You still have access to your money in an emergency
Easy to transfer to other ISA providers
No tax to pay on interest payments

The disadvantages of cash ISAs are:

You cannot deposit more than the ISA allowance within one tax year
The new Personal Savings Allowance allows everyone to earn up to £1,000 of interest each year with no tax to pay, making the tax benefits redundant for many people. This is especially true if you haven’t repeatedly contributed large amounts to your cash ISA.

Other types of ISA

Along with Cash ISAs, you can also find stocks and shares ISAs, Lifetime ISAs, Help to Buy ISAs (discontinuing) and Junior ISAs.

An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both. The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen

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Stocks and shares ISAs

A stocks and shares ISA allows each individual to use their ISA allowance to invest in a wide range of stocks, shares and bonds through a single account and one pool of money. Whereas a cash ISA does not require you to pay tax on interest, a stocks and shares ISA doesn’t require the ISA holder to pay tax on dividend payments and profits.

Pros and cons of stocks and shares ISAs

The pros of stocks and shares ISAs are that they enable a tax-efficient method of investing and streamlining investments into one location. However, unlike a cash ISA where your capital is secured, there is always a chance you could lose capital by using a stocks and shares ISA because they have investment risk.

Lifetime ISA

People between the age of 18 and 39 can choose to open a lifetime ISA. You can add up to £4,000 to your lifetime ISA every year to help buy a home or for retirement. Every year the government will add 25% of your deposit to the account, meaning you could receive up to an additional £1,000 every year into the account – plus interest. This continues until you are 50 years old. Penalties apply if you do not use the money to buy a home or for retirement.

Junior ISAs

You can get junior cash ISAs and even junior stocks and shares ISAs. These accounts follow the same rules as explained above but with a lower ISA allowance, currently less than 50% of the adult ISA allowance. They must be used for your children.

Transferring ISAs

Transferring your existing ISA to another bank has been made easier. You must let the provider you wish to transfer to know you want to switch. They will give you a form to fill out to complete the transfer.

Before transferring your existing ISA to a new provider, please check that you won't lose any benefits or incur any penalties by doing so.

For help understanding, comparing, and opening the right ISA for you, reach out to one of our Moneysprite ISA advisers to discuss your ISA options. We have advisers from Chelmsford to London, down to New Forest, Bournemouth and the South East, and help clients across the UK. Our friendly and patient team are here to assist you.

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